The Michigan Court of Appeals recently ruled that a taxpayer's sales of prepaid wireless minutes were not taxable unless they were sold on a physical card or with an authorization number.
The taxpayer, a gas station and convenience store, sold prepaid cellphones minutes. Customers could choose to add prepaid minutes to their cellphones through "PINless top-up minutes" or electronic personal identification numbers (EPIN). "PINless top-up minutes" automatically download to a cellphone after a cashier enters the customer's phone number into a system. EPIN minutes require the customer to enter a PIN into their cellphone in order to access the minutes.
The court analyzed whether either type of prepaid purchase was a prepaid telephone calling card or prepaid authorization number, which are taxable in Michigan. It ruled that the EPIN transactions were taxable because the PIN was a type of prepaid authorization number. However, the "PINless top-up minutes" were not taxable because neither a calling card or authorization number was provided with the purchase.